- Contract review is the process of examining a legal agreement’s terms, obligations, and risks before signing to ensure the contract is fair, compliant, and aligned with business goals. It typically involves legal, procurement, and finance stakeholders.
- The six core elements to review in every contract are key terms and obligations, compliance requirements, termination clauses, indemnity and liability provisions, confidentiality terms, and dispute resolution processes.
Contract review is the process of thoroughly examining a legal agreement to verify that the terms are fair, the obligations are clear, and the risks are identified before any party signs. Legal teams, procurement, and finance stakeholders each bring a different perspective to the review, which is why a structured process matters.
Skipping or rushing a contract review can lead to financial losses, compliance violations, and disputes that cost far more to resolve than the review itself. Organizations lose an average of 9% of annual revenue due to poor contract management, according to World Commerce and Contracting. This guide covers what contract review means, what to look for, a step-by-step process, and how to streamline reviews with automation.
Let’s discuss the importance of contract review.
What is contract review?
Contract review is the process of examining a legal agreement’s terms, conditions, obligations, and risks before signing. The goal is to confirm the contract is fair, enforceable, and aligned with the organization’s business objectives. A thorough contract review typically involves legal counsel, procurement, and finance stakeholders, each evaluating the agreement from their functional perspective. It is also referred to as agreement review, contract assessment, or contract checking in different industries.
Recently, LeadSquared chose HyperStart to address its contract challenges. With high volumes of contracts and limited legal resources, this B2B SaaS provider needed a solution that could handle complex workflows. HyperStart’s AI automation reduced review times by 75%, achieving a 60% cut in contract creation time and 6+ hours saved per review.
Receiving an MSA from a major client usually takes legal counsel a considerable amount of time for a thorough review. With HyperStart, we can quickly identify around 20 critical items in a first-cut review. Using HyperStart’s AI review, we get a first cut review in less than 1 minute, reducing the contract review time from 4-6 hours to just 2 hours.
Om Prakash Pandey
Head of Legal at LeadSquared
Why is contract review important for businesses?
Contract review is important because it prevents financial losses, compliance violations, and disputes that arise from unclear or unfavorable terms. According to World Commerce and Contracting, poor contract management costs organizations an average of 9% of their annual revenue. A structured review process identifies risks before signing and ensures every agreement supports the business’s strategic and legal requirements.
1. Reduces financial and legal risks through contract review
Reviewing contracts is a part of contract management that helps identify and reduce potential financial, legal, and reputational risks. Research from World Commerce and Contracting shows that up to 40% of a contract’s value can be lost through inefficient contract management processes, with the worst-performing organizations losing 15% or more of annual revenue. By carefully examining each clause, businesses uncover potential pitfalls that could lead to disputes, unexpected costs, or even litigation. For instance, a contract containing vague terms creates liability issues, but a thorough review clarifies these points before signing.
2. Ensures compliance with legal standards in contracts
Regular contract reviews assist businesses to stay in compliance with legal standards and regulations. Not adhering to these requirements results in penalties, missed compliance fines, or lawsuits. By systematically reviewing contracts, businesses meet all necessary legal obligations that reduce the risk of non-compliance.
3. Align contractual agreements with business objectives
A well-conducted contract review ensures that every legal agreement supports the business’s goals and objectives. Businesses ensure contracts align with their strategic objectives to avoid agreements that do not support their overall mission. This alignment builds a more cohesive approach to business operations.
4. Strengthens partnerships by reviewing contracts
Reviewing contracts helps build and maintain solid relationships with partners, clients, and vendors. Clear and fair agreements build trust. Addressing ambiguities at the start helps prevent misunderstandings later on which could lead to disputes. A thorough review shows professionalism and commitment to collaboration, which strengthens these crucial partnerships.
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What should you look for during a contract review?
During a contract review, focus on seven core elements: key contractual terms (payment, deliverables, obligations), compliance requirements, termination and renewal clauses, indemnity and liability provisions, confidentiality terms, dispute resolution processes, and performance metrics. Prioritize high-risk clauses first, specifically liability caps, indemnification, and termination rights, rather than reviewing every word equally.
A step-by-step contract review process
The contract review procedure follows six steps: assess purpose and scope, verify key terms, check compliance, review financial obligations, evaluate risks, and finalize approvals. Legal teams spend an average of 3.2 hours reviewing a single contract manually, so a structured process keeps reviews consistent and prevents missed clauses.
Here is what you should focus on during the legal contract review process to ensure a thorough evaluation of the contract’s key components.
| Contract Components | Purpose of Review | Importance for Business Operations |
| Key Contractual Terms | Review terms related to payment, deliverables, and obligations | Ensures clarity on expectations and responsibilities |
| Compliance Requirements | Check for adherence to relevant laws and regulations | Helps avoid legal issues and ensures compliance |
| Termination Clauses | Assess the conditions under which the contract can be terminated | Protects your interests in case of non-performance |
| Indemnity and Liability | Examine clauses on liability and indemnification | Minimizes potential financial risk |
| Confidentiality Provisions | Ensure confidentiality terms are clear and enforceable | Safeguards sensitive information |
| Dispute Resolution Process | Review how disputes will be handled and resolved | Provides a clear path for conflict resolution |
| Performance Metrics | Look for any key performance indicators (KPIs) defined in the contract | Ensures accountability and performance tracking |
With this information, identifying potential risks and ensuring that the contract aligns with your organization’s strategic goals becomes easier. Let’s discuss the entire contracting process along with a contract review checklist.
What is the step-by-step contract review process?
The contract review process follows six steps: assess the contract’s purpose and scope, identify and verify key terms, conduct a compliance and legal check, review financial and operational obligations, evaluate potential risks and liabilities, and finalize approvals with secure documentation. Legal teams spend an average of 3.2 hours reviewing a single contract manually, which is why a structured process and legal AI tools with checklists and automation reduces review time significantly.
Conducting a comprehensive contract review involves a systematic approach to ensure all the aspects of the agreements are thoroughly evaluated. Check out this step-by-step process of reviewing your agreements along with the contract review checklist.
1. Assess the contract’s purpose and scope
The first step begins with the evaluation of the overall purpose of the contract. This involves understanding the key objectives and ensuring all the stakeholders involved are effectively identified. Having a well-defined purpose and scope results in successful agreement which also minimizes misunderstandings later on.
Checklist for a contract assessment:
Is the purpose of the contract clearly defined?
Are all parties accurately identified?
Does the scope align with your business goals and expectations?
2. Identify and verify key contractual terms
Focus on reviewing important terms within the contract. This step involves assessing the clauses related to payment, deliverables, and obligations to ensure clarity and accountability. Understanding these key terms helps prevent disputes and establishes clear expectations for all parties.
Checklist for key terms and clauses:
Are payment amounts, schedules, and methods specified?
Are the conditions under which the contract can be terminated outlined?
Are the confidentiality expectations clear and enforceable?
Are liabilities and indemnification terms defined?
When reviewing contracts, look for vague and unclear terms that invite interpretation like “reasonable efforts” or “as soon as possible.” Replacing these with specific commitments ensures clarity.
3. Conduct a compliance and legal check with your legal team
Verify that the contract complies with the relevant laws and regulations. Collaborating with your legal team and attorney helps confirm that the contract adheres to industry standards and legal requirements. This approach minimizes the risk of non-compliance issues that result in penalties or legal disputes.
Checklist for compliance:
Are all relevant laws and industry regulations considered?
Are necessary licenses and permits included?
Is the jurisdiction for legal disputes clearly defined?
4. Review financial and operational obligations
Ensure that the financial and operational obligations outlined in the contract are feasible and clearly defined. This step includes analyzing payment schedules, deliverable timelines, and performance metrics to confirm that they align with the company’s capabilities and expectations.
Checklist for financial and operational review:
Are financial obligations realistic and clearly stated?
Are deadlines for deliverables and payments clearly outlined?
Are performance expectations and metrics defined?
5. Evaluate potential risks and liabilities
After review, identify potential risks associated with the contract and document strategies for mitigation. This step involves analyzing the agreement for possible vulnerabilities, outlining risk management strategies, and ensuring that processes for handling disputes are articulated properly.
Checklist for risk assessment:
Are all potential risks identified?
Are procedures for resolving disputes outlined?
Are strategies in place to mitigate identified risks?
6. Finalize approvals and secure documentation
Conclude the process by ensuring that the executed contract is stored securely. This final step includes reviewing the agreement for accuracy, obtaining final contract approvals from stakeholders, and integrating secure storage methods to retrieve the contract for future reference.
How often should you conduct a contract review?
Organizations should conduct contract reviews at minimum annually, and more frequently when regulatory changes occur, business conditions shift, or contracts approach renewal or expiration dates. High-value or high-risk contracts (vendor agreements over $100,000, compliance-sensitive deals, multi-year commitments) should be reviewed quarterly.
A structured contract review and management process ensures agreements are monitored from signing through expiration, renewal, and compliance deadlines.
The cost of missing a review deadline can be significant. Organizations using structured renewal and review tracking processes reduce contract costs by 5% to 15% annually through a combination of cost savings and cost avoidance, according to a 2024 procurement performance study by Freqens.
The review frequency depends on the contract type and risk level. Employment agreements and standard NDAs may only need annual reviews. Vendor and supplier contracts with variable pricing or SLA requirements benefit from semi-annual or quarterly reviews to ensure the terms still align with operational needs and market conditions.
Establishing a contract review calendar with automated alerts at 30, 60, and 90 days before key milestones (renewal dates, expiration dates, compliance deadlines) prevents missed deadlines. Contract management software tracks these dates automatically and routes review tasks to the right stakeholders.
What are the different types of contract review?
The four main types of contract review are business contract review (evaluating commercial terms and financial obligations), commercial contract review (focused on vendor, supplier, and procurement agreements), legal contract review (assessing enforceability, liability, and regulatory exposure), and compliance contract review (verifying adherence to industry regulations such as GDPR, HIPAA, or SOX). Each type involves different stakeholders and focuses on different risk areas.
| Type of review | Focus area | Key stakeholders | When to conduct |
|---|---|---|---|
| Business contract review | Commercial terms, financial obligations, deliverables, SLAs | Procurement, finance, operations | Before signing vendor, supplier, or partner agreements |
| Commercial contract review | Pricing, payment terms, volume commitments, market-specific clauses | Sales, procurement, legal | During vendor selection, RFP responses, commercial negotiations |
| Legal contract review | Enforceability, liability, indemnification, jurisdiction, IP rights | In-house counsel, outside law firms | High-value contracts, M&A deals, complex regulatory environments |
| Compliance contract review | Regulatory adherence (GDPR, HIPAA, SOX), data protection, audit requirements | Legal, compliance, IT security | Regulated industries, cross-border agreements, data processing contracts |
Checklist for final approval and documentation:
Have all required approvals been obtained?
Is the contract stored securely for easy access in the future?
Are any amendments to the contract documented?
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How can you streamline the contract review process?
Streamlining the contract review process requires three actions: implementing a CLM platform to automate routine checks and route approvals, creating standardized playbooks for common contract types so low-risk agreements can be self-served by business teams, and using an AI-powered review tool like HyperStart that flag risks and extract key terms automatically. In a 2018 LawGeex study, AI reviewed NDAs in 26 seconds with 94% accuracy compared to 92 minutes and 85% accuracy for human lawyers.
HyperStart is a contract automation software that simplifies this contract review by automating key checks and extracting vital data. Contract review automation transforms your workflow by reducing time spent on manual checks and enhancing accuracy in every agreement. In a peer-reviewed 2018 study by LawGeex, AI achieved 94% accuracy in reviewing NDAs compared to an average of 85% for 20 experienced human lawyers. The AI completed the review in 26 seconds versus 92 minutes for the human reviewers.
If you want to improve your contract review process and save valuable time, try HyperStart today. Schedule a demo to see how our AI-driven platform streamlines your contract management.
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